3rd Generation Actual Loss Insurance Expected to Rise by Double Digits Next Year
First Half Actual Loss Insurance Loss Ratio Higher Than Last Year
The loss ratio of 3rd-generation indemnity insurance exceeded 150% in the first half of this year, putting non-life insurance companies on alert, and next year's premium increase appears inevitable.
According to the insurance industry on the 4th, the loss ratio of indemnity insurance for the first half of this year, aggregated from all non-life insurance companies handling indemnity insurance, was 121.2%, up from 118.9% last year.
According to the insurance industry on the 4th, the combined loss ratio for indemnity insurance companies handling actual expense insurance in the first half of this year was 121.2%, up from 118.9% last year. [Photo by Kim Dahee, Asia Economy]
A loss ratio exceeding 100% means that insurance companies are running a deficit on indemnity insurance. The scale of indemnity insurance deficits recorded by insurance companies was 2.5 trillion KRW in 2019, 2.5 trillion KRW in 2020, 2.8 trillion KRW in 2021, and 1.5 trillion KRW in 2022.
In particular, the loss ratio of the 3rd-generation indemnity insurance launched in 2017 rose from 131.4% last year to 156.6% in the first half of this year. This means that if an insurer receives 1 million KRW, about 1.6 million KRW is paid out as insurance claims. The loss ratio of the most recent 4th-generation product launched in 2021 also increased from 89.5% last year to 115.9% this year.
On the other hand, the loss ratio of the 1st generation decreased slightly from 124.9% last year to 121.5% this year, and the 2nd generation from 111.5% last year to 110.7% this year, showing a gradual stabilization trend. This is due to strengthened review standards related to excessive cataract surgeries following Supreme Court rulings.
The Cause of Rising Indemnity Insurance Loss Ratios: Excessive Medical Treatment
One of the main reasons for the steady increase in the loss ratio of indemnity insurance is the excessive treatment of non-reimbursable items. [Photo by Asia Economy DB]
The continuous rise in the loss ratio of indemnity insurance is attributed to excessive treatment of non-reimbursable items.
Looking at the trend of insurance payments by major non-reimbursable items over the past five years (2018?2022) from four insurers?Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, Meritz Fire & Marine Insurance, and KB Insurance?physical therapies such as manual therapy, extracorporeal shock wave therapy, and proliferative therapy increased by an average of 19.3% annually.
Insurance payments for non-reimbursable injections such as nutritional supplements (excluding cancer patients) also increased by an average of 20.2% annually. Additionally, payments for items such as developmental delay (59.6%), resalable therapeutic materials (48.8%), and gynecomastia (56.0%) have been rising sharply.
Last year, insurance payments for these six non-reimbursable items amounted to 1.6163 trillion KRW, more than double the 724.2 billion KRW in 2018. Non-reimbursable items allow medical institutions to autonomously set prices and frequency, which has been criticized for causing excessive treatment.
According to recent data released by the Health Insurance Review & Assessment Service, the price variance for non-reimbursable manual therapy ranges up to sixfold (median price 100,000 KRW, highest price 600,000 KRW).
Due to the worsening loss ratio, the industry expects a premium increase for 3rd-generation indemnity insurance to be unavoidable. However, premiums for the 1st generation, which are stabilizing, may see some reductions.
However, a decrease in average premiums does not mean that all individuals will see premium reductions. Each insurer has different rates of increase or decrease, and premium adjustments based on age are also applied.
Indemnity insurance is designed so that premiums naturally increase as the insured ages due to reflected risk rates. For example, even if an insurer lowers premiums by 1%, a policyholder whose premium adjustment due to aging is 2% will inevitably feel that their premium has increased.
Not only the 1st generation but also the 2nd generation (October 2009?March 2017) premiums are expected to be slightly increased or frozen next year. The 2nd generation indemnity insurance has the largest number of policyholders at 19 million. This insurance also partially covers cataract surgery costs. The 2nd generation loss ratio decreased from 130.4% in 2020 to 129.7% in 2021 and 111.5% last year.
However, premiums for the 3rd-generation indemnity insurance sold after 2017 are expected to rise by double digits again next year. The loss ratio showed a steep upward curve from 99.4% in 2019 to 104.3% in 2020, 116.4% in 2021, and 131.4% last year. The 4th generation product, launched after 2021, has not yet reached five years since launch and is expected to remain frozen next year.
An industry official said, "If the current trend continues, the loss ratio of 3rd-generation indemnity insurance is expected to exceed 160% by the end of the year, making premium normalization inevitable. Although there are differences by company for the 1st generation, there may be some room mainly among large insurers."
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